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Ser 7 > Ch 13 - Opening Accounts > Flashcards

Ch 13 - Opening Accounts Flashcards

(90 cards)

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1
Q

Four critical pieces of information

A

List:
–Name
–Date of birth (DOB)
–Address
–SSN or TIN

Must be collected as per Patriot Act

Must be verified through:
–Valid government-issued I.D.
–Credit bureau database

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2
Q

Customer occupation

A

Must confirm if the customer is:
-Affiliate of publicly traded company
-A registered financial representative

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3
Q

Suitability questions

A

Not required to be answered
Firms cannot make recommendations without this information

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4
Q

Customer record retention requirements

A

Must maintain records for six years
Records also maintained six years after account closing

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5
Q

Cash accounts

A

Require full payment for transactions

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6
Q

Signatures on new account form

A

Customer does not sign
Registered representative may sign if servicing account
Principal must sign to approve the account

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7
Q

Required firm actions

A

Must confirm customer info within 30 days of account opening
Must confirm customer info every 3 years

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8
Q

Arbitration agreements

A

Forces customer disputes to binding arbitration facilitated by FINRA

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9
Q

Quarterly statements

A

Can be sent by mail or electronically

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10
Q

Monthly statements

A

Sent if they customer holds penny stocks
Can be sent by mail or electronically

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11
Q

Holding mail

A

Can hold customer mail for up to 3 months
Additional 3 months for a legitimate reason

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12
Q

Trade confirmations

A

Provides trade details after the transaction
Sent by completion of the transaction
Can be sent by mail or electronically

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13
Q

what appears on trade confirmation

A

name
account #
security bought.sold
# shares/unit
date and time of transaction
fee/commissions
capacity of firm (agency/principal)
accrued interest (bod trades)

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14
Q

Individual accounts

A

Accounts owned by one party
Subject to probate without TOD

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15
Q

Transfer on death (TOD)

A

Account with a listed beneficiary
Avoids probate

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16
Q

Dying testate

A

A person dies with a valid will in place
Will appoints estate executor
Executor petitions probate court for letters testamentary
Letters testamentary confirm executor’s status to firm maintaining custody

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17
Q

Death reporting to firm

A

All open orders canceled
Account marked as deceased and restricted
Firm awaits death certificate and estate documents (if necessary)

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18
Q

Dying intestate

A

A person dies without a valid will in place
Probate court appoints estate administrator
Letters of administration confirm administrator’s status to firm maintaining custody

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19
Q

Typical document requirements to claim accounts

A

Certified death certificate
Letters testamentary (if no TOD and died testate)
Letters of administration (if no TOD and died intestate)
Inheritance tax waiver (if decedent resided in state with estate tax)

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20
Q

Joint WROS accounts

A

Provide equal ownership to all parties
Surviving owner(s) inherit the account
Avoids probate

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21
Q

Community property accounts

A

Also known as tenancy by entirety
Like a WROS account, but only for married couples

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22
Q

Joint TIC accounts

A

Provide specific ownership allotments
Deceased owner portions go to the estate
Subject to probate

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23
Q

Joint accounts

A

Any joint owner can:
-Trade
-Receive mail
-Manage the account
All joint owner names must be on checks

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24
Q

Power of attorney (POA)

A

Allows a third party to act on behalf of the account owner(s)
Referred to as trading authorization
Ceases at account owner’s death
Can be revoked at any time

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25
Limited POA
Third party can place trades in the account Third party cannot request withdrawals
26
Full POA
Third party can place trades Third party can request withdrawals
27
Non-durable POA
Ceases at account owner incapacitation
28
Durable POA
Survives account owner incapacitation
29
Fiduciaries
Act in the best interest of the account owner
30
Uniform Prudent Investor Act (UPIA)
Requires fiduciaries to invest holistically Does not ban aggressive investments
31
Discretionary accounts
Provide POA to financial professionals Type of fiduciary account
32
Discretionary trade
Involves professional choosing one of: -Asset -Action. -Amount Not discretionary trade (if same day): -Price -Time Must be reviewed promptly by a principal
33
Wrap accounts
Type of discretionary account All fees wrapped into one Investment adviser product
34
UGMAs and UTMAs
Custodial accounts set up for minors Type of fiduciary account One custodian per account One minor per account Taxes reported under the minor’s SSN Contributions are irrevocable gifts to minor
35
Guardianship accounts
Created for investors unable to manage their own assets Court-appointed guardian acts as fiduciary
36
Trust accounts
Setup for the benefit of a specific party Type of fiduciary account Eligible for margin if specifically authorized in the trust agreement
37
Grantor
Creates and funds the trust
38
Trustee
Manages the trust for beneficiaries
39
Sole proprietorships
One business owner Easiest business entity to form Unlimited liability Flow through of gain and loss
40
General partnerships
At least two general partners Forming the business is not significantly difficult Unlimited liability Flow through of gain and loss
41
Partnership account
Business account for a partnership Requires a partnership agreement
42
Limited partnerships
At least one general partner --Manages and sometimes funds the business --Unlimited liability At least one limited partner --Only funds the business --Limited liability Forming the business is not significantly difficult All partners obtain flow through of gain and loss
43
Limited liability companies (LLCs)
Business owners referred to as members Forming the business can be difficult Limited liability Flow through of gain and loss
44
S corporations
Business owners referred to as shareholders --No more than 100 shareholders --Shareholders may not be non-resident aliens Forming the business is not significantly difficult Limited liability Flow through of gain and loss
45
Corporate account
Business account for a corporation Required to open: -Corporate resolution -Corporate charter
46
Corporate resolution
Names employees who can act on behalf of the business account
47
C corporations
Business owners referred to as shareholders - Unlimited shareholders - No residency or citizenship requirements Forming the business can be significantly difficult Limited liability Flow through of gain only (double taxation)
48
Prime brokers
Provide services to institutional customers: -Maintain custody -Record keeping -Send trades to various firms often used by hedge funds keep all assets with one prime broker, but trades are sent to other brokers the prime broker consolidates all funds, thus able to obtain high quality trade executions typically comes with lower interest charged on borrowed funds
49
DVP accounts
Delivery vs. payment When investor request to BUY The investor maintains custody of assets at the bank Broker-dealer executes purchase of security Payment made to broker-dealer upon delivery to the bank
50
RVP accounts
Receive vs. payment When investor request to SELL The investor maintains custody of assets at the bank Broker-dealer executes the sale of the security Payment made to bank upon delivery of security to broker-dealer
51
Street name
Securities held in the custody of broker-dealer Broker-dealer considered owner on transfer agent’s book Investor is the “true” owner of the security
52
Direct Registration System
Issuer or transfer agent holds security on behalf of the investor investor recv statement of ownership directly from issuer or transfer agent (in opposition to "street name")
53
Transfer and ship
Securities purchased through broker-dealer Registered in name of the investor Physical certificates shipped to the investor
54
Day trade
Purchase and sale of same security intraday
55
Pattern day trader
Investor performing 4 day trades in a 5 business day period
56
Pattern day trader accounts
Minimum $25,000 equity May trade 4x minimum maintenance excess May require risk disclosure
57
Fee-based accounts
Charge one annual fee for all trades performed Suitable for self-driven investors trading frequently
58
Complaint
Dissatisfaction submitted in writing -Letters -Emails -Texts -Instant messages Forwarded to a principal for review Representative and principal work together to resolve Must be kept on file for 4 years at OSJ - Office of Supervisory Jurisdiction
59
Numbered accounts
Customer’s name is hidden from representatives Account owner referred to by a number (e.g. Customer # 1234) Firm must maintain a record of the actual owner
60
Disputes with customers
Lawsuits may be filed if no arbitration agreement is in place Mediation or arbitration exists if an arbitration agreement was signed
61
Mediation
Voluntary and private negotiation nonbinding Mediator facilitates potential resolution Any party can withdraw Results and hearing are private
62
Arbitration
FINRA-mandated system for unresolved disputes Arbitrator(s) hear arguments from both sides Arbitrator(s) make a final, binding ruling Results are made public, but the hearing is private
63
Intra-industry disputes
Arbitration is required for unresolved disputes Applies to all disputes except those involving sexual harassment and discrimination firm vs firm, firm vs rep, typically resolved thru code of arbitration (or mediation) thus filing law suit is prohibited unless sexual harrasement and or discirmination
63
Margin accounts
Borrow money for investment (leverage) Only suitable for risk-tolerant investors
64
Margin disclosure statement
You can lose more than you deposit The firm may liquidate your securities without contacting you The firm can selectively choose what securities are sold The firm can increase house requirements without notice You are not entitled to time extensions to fulfill margin calls
65
Margin agreement components
Hypothecation agreement Credit agreement Loan consent form
66
Hypothecation agreement
Investor pledges securities as collateral Must be signed by the customer Firms rehypothecate securities to the bank
67
Regulation U
Governs B/D to bank relationship B/Ds can rehypothecate 140% of debit
68
Credit agreement
Margin loan details and specifics Must be signed by the customer
69
Loan consent form
Allows B/D to commingle customer securities, and lend out margin securities to other customers Does not have to be signed
70
Commingling securities
Allowed for margin account securities Prohibited for cash account securities
71
BD borrow money from banks for margin accounts at
broker loan rate then they loan money out to customer a few % pt higher than this
72
Regulation T
regulation controlled by Federal Reserve Requires 50% initial deposit for margin trade (base on initial purch $) May deposit 2x Reg T requirement in fully-paid securities
73
Options contracts & margin
9 months or less to expiration -Must pay 100% of option premium More than 9 months to expiration (LEAPS) -Must pay 75% of option premium
74
Regulation T settlement
2 business days after regular-way settlement
75
FINRA margin requirement
Minimum equity of $2,000 if less than 2k, must deposit entire amount of cost of security once 2k is obtained, the normal requirements are effect minimun maintain equity level =25% for long position, 30% for short controlled by FINRA
76
Marginable securities
Exchange-listed stocks Federal Reserve approved OTC stocks Debt securities Primary offerings after 30 days of ownership LEAPS options with more than 9 months to expiration Warrants
77
Non-marginable securities
OTC stocks not approved by the Federal Reserve Primary offerings held less than 30 days Any option with 9 months or less to maturity Insurance products Rights
78
Frozen accounts
Implemented if the customer misses Reg T settlement Purchases only occur if cash is in the account Lasts for 90 days
79
Long equity formula
LMV - debit = equity LMV is the long market value Debit is the amount borrowed (only change if borrowed more money or pays back borrowed funds) Equity is the account’s net worth deposit additional cash = decrease/lower debit deposit additional stock = increase LMV sold stocks = lower both LMV and debit withdraw cash = no change in LMV, debit increase
80
Short equity formula
Credit - SMV = equity Credit is the amount sold short plus the amount deposited SMV is the short market value Equity is the account’s net worth deposit additional cash = increase credit closed out short position stock = dec credit and dec SMV sold stocks = lower both LMV and debit
81
Minimum maintenance for long accounts
25% equity requirement If falling below, must: -Deposit cash -Deposit fully paid securities -Sell securities
82
Account value at min. maintenance (long)
Debit / 0.75
83
Restricted accounts
Below 50% equity Half of sales proceeds must pay down the debit balance
84
Minimum maintenance for short accounts
30% of SMV equity requirement If falling below, must: -Deposit cash -Close short position
85
Special memorandum account (SMA)
Like a credit line in a margin account Allows additional funds to be borrowed Can be withdrawn as cash
86
Excess equity
Equity - 50% LMV or SMV *equity based on changed price *50% of LMV or SMV new * Amount of equity above 50% Typically equal to SMA
86
SMA in long accounts
Increases if LMV rises $1 LMV increase = $0.50 SMA increase SMA is not lost if the market declines 2x SMA = buying power
87
SMA in short accounts
Increases if SMV falls $1 SMV decrease = $1.50 SMA increase SMA is not lost if the market increases 2x SMA = selling power
88

Ser 7 (16 decks)

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